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June 15, 2018

Corporate war stalls Indian Navy’s Rs 20,000 crore project

The Anil Ambani-led Reliance Naval & Engineering Ltd (RNEL) has
filed a complaint with the defence ministry against a senior naval
officer, alleging that he has been favouring its competitor, Larsen
& Toubro, in a contract because his son is employed there. The
complaint, on which an internal inquiry is now on, has stalled a Rs
20,000-crore ‘Make in India’ naval warship deal. The allegations include
‘favouritism and supplying of insider information’.

The
contract to make four amphibious warships in India has been hanging fire
since last year when L&T and RNEL were shortlisted by the defence
ministry.

ET has learnt the RNEL complaint specifically states
that the son of the top Navy officer works with L&T’s defence
division.

The officer concerned, a vice-admiral, has also sent
across his views on the matter after the defence ministry began a probe,
officials told ET. In response to queries by ET, a spokesman for RNEL
said: “Yes, we have filed an official complaint in the matter.” He
declined to go into details.

When contacted, L&T officials
denied the allegations. “Our company does not engage in such acts and
the organisation’s ethos does not permit engaging in anything against
our value system,” said a top L&T official. The Navy did not offer
any comment.

The two companies have been fighting a bitter
battle for the mega contract that can turn around the fortunes of the
victorious shipyard.

The landing platform docks (LPDs), used to
transport troops and equipment such as tanks and attack helicopters
across sea, would be the largest warship to be built in an Indian
private sector shipyard.

While RNEL had tied up with the French
Naval Group for the contract, L&T’s technology partner is Spain’s
Navantia Group. All four ships are to be built at an Indian yard with
the help of a foreign partner who will chip in with design and
technology.

The companies were shortlisted in 2017, but the next
step in the procurement process — opening of commercial bids and
determining the winner — has now been stalled.

Earlier, the selection process rejected a bid by ABG Shipyard, which is facing bankruptcy proceedings.

Concerns
have been expressed recently after the report of an internal auditor
raised doubts on RNEL’s ability to “continue as a going concern” due to
current liabilities and loans being called back by lenders.

Meanwhile,
a May 31 news report by PTI said independent auditors had raised doubts
on L&T’s shipbuilding arm continuing as a ‘going concern’ due to
liabilities after multiple years of losses.

“The company’s
current liabilities exceeds its current assets as at the balance sheet
date. These conditions indicate the existence of material uncertainty
that may cast significant doubt about the company’s ability to continue
as a going concern,” Sharp & Tannan, the auditors, said in the FY17
balance sheet.

The Indian warship-building sector has suffered
considerable strain over the past five years with few orders trickling
to the private sector.

Almost all major contracts have gone to
public sector shipyards that are currently saddled with orders beyond
their building capacity.